Dependence modeling of aggregate seismic loss using copula

The extent of seismic loss correlation/concentration of multiple portfolios of buildings is an important issue for successful seismic risk management. To investigate seismic loss dependence and to develop a statistical seismic loss model of multiple buildings, simulated seismic loss samples for two portfolios of wood-frame buildings located in south-western British Columbia are used. The characterization considers a loss frequency model that incorporates one dependent random component acting as a common shock to all buildings, and a copula-based loss severity model, which facilitates the separate construction of marginal loss distribution functions and nonlinear copula function with upper tail dependence. Analysis results indicate that the dependence structure of aggregate seismic losses can be adequately modeled by the right heavy tail copula, and that overall accuracy of the proposed method is satisfactory at probability levels of practical interest.